cash flow question

[alexh]

I know this might be an easy question for a sophisticated investor.

but my question is, if your rental property breaks even, and your rent pays for your mortgage without much positive cash flow. Dont you still build equity, thus a positive return long term

In my undestanding youre still a winner, since your tenants pay your mortgage.
This is simply put. I have an understanding of ROI, and leverage.

pls correct me.

Thanks to all

 

[CalvinPeters]

I think everyone has their own focus on what they are looking for to fit their portfolio. A negative cashflow can be a good investment depending on the circumstance...a short term period before a decent rent increase for example...or aquiring a property below market value to re-position. I would consider a break even property to be fine as long as I was assured that there will be no potential vacancy issues...and perferably in an appreciating market/community. (also make for sure that you are holding a few months mortgage payments in the bank account, just in case) But really, the idea is to buy positive cashflow, thus not only paying down your mortgage, but providing its own reserve fund...looking like a real winner in the portfolio and giving you the ability to qualify for MORE properties...and hey, it should be in a equity upside community as well...that is where you will get your high ROI`s and the stories to tell people. (raise more capital?) There is likely no reason to not buy positive cashflow...you might have to go outside of your community or province to get it however. (Thank God for Management Companies) The highest positive cashflowing properties that I own are in a little town called Fort Mcmurray. Some of those properties throw a BUNCH of cash. I like that. (smile)

 

[GarthChapman]

The answer is different for everyone. It depends on your specific situation and your goals.

For example:
1) Could you fund a reversal of fortunes with the property (ie serious vacancy and/or significant reduction in rent putting the property into negative cashflow)?
2) Would a significant drop in the value of the property cause you real problems?
3) How would the purchase of such a property take you closer to your goals?

 

[alexh]

Positive cash flow is definitely ideal.

Love this site!